Global alternative asset manager Carlyle Group has upped its
exposure to the African continent with a $147 million
investment in Nigeria’s Diamond Bank.

The transaction, which was announced on Monday, will depend
on approval by the Nigerian regulators, but if given the
go-ahead Carlyle will acquire an 18% stake in the bank.

We want Carlyle to be active members on our board, to add
value and offer up their network, not just to provide
capital

Uzoma Dozie

The deal will mark the private equity firm’s
first investment in Nigeria and its first in African financial
services.

"We have known the Diamond Bank team for a while now, since
we started looking at the banking sector much more closely
around two years ago," says Genevieve Sangudi, managing
director and head of West Africa for the Carlyle sub-Saharan
Africa Fund (CSSAF).

"We were keen to go into business with them because they are
a well-diversified bank, with a reputable management team.
Moreover, the banking sector in Nigeria reflects the positive,
long-term macroeconomic trends in the country, despite recent
volatility and was a good investment for the group."

According to the joint press release, proceeds from the
investment will be used to increase Diamond Bank’s
tier 1 capital, improve IT infrastructure, and will be used
towards the refurbishment and expansion of its branches.

Capital needs

Diamond Bank has raised around $700 million in tier 1 and
tier 2 capital during the past two years. In June, it received
approval for a N50.3 billion ($309 million) rights issue after
the bank’s debut Eurobond in May was
scaled down to $200 million from $350 million.

"Market conditions means that liquidity has been tight in
Nigeria," says Uzoma Dozie, Diamond Bank’s
recently appointed CEO, in an interview with Euromoney. "A
rights issue at this point in time seemed like the most
sensible option."

Diamond Bank’s management recorded a September
2014 Basel I capital adequacy ratio (CAR) of 16.9%, which drops
to 13.5% under Basel II and III. If the rights proceeds are
factored in, CAR returns to around 17%, according to
Solanke.

"To acquire such a decent size stake in the bank, we think
Carlyle acquired in part or in full the rights attributable to
Kunoch Holdings [set up by the founding members of Diamond
Bank] after Kunoch’s acquisition of the
Actis’ stake, and possibly picked up some
additional shares via traded rights on the exchange," he
says.

Private equity is a long-term call.
Businesses
such as Carlyle are concerned with long-term
forecasts
as opposed to short-term
glitches

Adesoji Solanke

Funds managed by Actis, another private equity investor
specializing in emerging markets, acquired a substantial equity
stake in Diamond Bank in 2007. In August, Kunoch Holdings
acquired a 14.8% stake in the bank after it completed its
purchase of Actis’ share.

Before the Kunoch deal, Actis had two seats on the board.
"With Carlyle holding an even bigger stake, the group should
get at least two board seats," says RenCap's Solanke. "We do
not know Kunoch’s shareholding post the rights
issue."

Diamond Bank's Dozie says: "The number of board members that
we will have from Carlyle will be discussed at the next board
meeting. We want Carlyle to be active members on our board, to
add value and offer up their network, not just to provide
capital."

In an effort to stabilize the currency, the Central Bank of
Nigeria raised the benchmark interest rate to 13% from 12%
– an all-time high – and devalued the naira
by 8%. As of Wednesday, the naira was trading at a record low
of 178.85 to the dollar shortly after the market opened, before
a slight rebound.

However, private equity companies such as Carlyle have
increasingly set their sights on Africa in a bid to
leverage off of the continent’s strong economic
growth, which has been reinforced by positive stories such
as a growing consumer class and the spread of political
stability.

Low yields in developed markets due to quantitative easing
has also driven money towards the continent. According to data
from the World Bank, SSA growth is set to average at 5.2% for
2014, up from 4.4% in 2013.

Capital flows to SSA continue to rise, hitting an estimated
5.3% of regional GDP in 2013. And while foreign direct
investment (FDI) into the region has been poor, the trend is
positive: in 2013, net FDI flows to the region grew 16% to $43
billion up from $37.7 billion in 2012, boosted by oil and gas
discoveries in countries such as Angola, Mozambique and
Tanzania.

Further reading on Euromoney

Add Your Comment

All fields are compulsory

All comments are subject to editorial review as we are subject to the same regulations adhered to in publishing our own content. For this reason, your comment may not be live immediately, or may not be published.

Magazine

The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies Policy before using this site.